Economy

Last edited Wed Jan 25, 2023, 03:12 PM - Edit history (9)

and about 10.3% since the middle of 1987 (all figures are average annualized returns).

Using the broad-based S&P 500 as a proxy for U.S. stocks overall. The S&P 500 is about 80-85% of the total U.S. stock market capitalization. The remainder -- midcaps and smallcaps -- have had an even better overall record. I use the S&P 500 because data about it going way back is easier to find than total U.S. stock market.

The 8.6% average annual return since Jan 2, 2008 corresponds to a doubling time of 8.4 years. (This includes reinvested distributions. Based on the Vanguard 500 Index Fund VFINX from January 2, 2008 to today's (Sept 26) close). A total U.S. stock market fund would have an even better record).

Edited to add: January 2, 2008 was a relative high point in the market, shortly after the October 2007 all-time high. Measured from year end 2008, December 30, 2008 thru today's close, VFINX had a 13.0% annualized average return, corresponding to a doubling time of 5.7 years.

As for from the middle of 1987: a 10.3% average annual return corresponds to a doubling time of 7.1 years.

How many doublings should we miss out on worrying about a 50% plunge, which does occasionally happen? (to be clear, the above returns include the bad periods as well as the good ones).

For S&P 500 total return, as well as bonds, and T-bills since the start of 1928:
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html
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What really matters as far as risk is the risk of running out of money in retirement, and that risk is much higher for people who don't have any equities and only rely on "safe" fixed income investments, which don't even keep up with inflation. Innumerable historical simulations in innumerable studies have shown that. IOW its a bigger gamble not to be in the market. I don't wish to take that gamble.

My parents have done very well in their 4+ decades of investing, and I have done very well in my 4+ decades. In my case by mostly broadbased mutual funds. I don't attempt to pick individual stocks.

Yes, when an oligarch loses half their net worth, it doesn't affect their lifestyle at all
the remaining half of their wealth is more than they know what to do with.

When a regular person loses half their savings, it sometimes means they can't retire when they planned to. Or there's not enough money for higher education for the children. There's less of a buffer for emergencies or extended job loss as well.

Pension funds and insurance companies also have equity investments. When the market does poorly, pension funds have less to pay out in pensions, meaning pension reductions or running out sooner than they otherwise would. Insurance companies have to make up the difference through higher premiums.

Also, sustained stock market declines adversely affect consumer and business confidence, resulting in a reduction in spending with ripple effects throughout the economy, causing slowdowns, reduced hiring, and sometimes recessions, that affect all people, hurting those with the least the most.

The stock market is a leading indicator. All recessions that I've looked at began with a severe stock market downturn several months before the GDP and employment downturns began. Similarly, most or all economic recoveries were preceded by stock market upturns.


Yes, and sadly yes. We are in a big suck time.

I'm very much hurt by inflation -- the purchasing power of my fixed annuity has declined well over 10% since inflation began rising in early 2021. What's more, unlike stocks, purchasing power will never recover. Historically, purchasing power is lost forever -- only a sustained period of serious deflation (prices overall dropping) over several years can bring that back, and that only happens in Great Depression scenarios that we obviously don't want.

Likewise my other fixed income investments (savings accounts, money market accounts, CD's, bonds, etc.) have likewise suffered a big and unrecoverable loss in purchasing power.

Thanks for the question

Edited to add January 5, 2023 since I've been referring to this in other threads, I want to include this as to why the stock market goes up for reasons other than being a manipulated casino or a Ponzi scheme -- so that it's all in one place --

This from Peter Lynch in 2001:


Edited to add January 25, 2023 since I've been referring to this in other threads,

Nothing holds up as well in the face of withdrawals and inflation than does equities, except perhaps real estate. In other words, it's an even bigger gamble to not have a sizable proportion in equities.



Over the past 20 years, it has grown 6.3710 fold, an average annual increase of 9.7%/year

Over the past 50 years, it has grown 131 fold, an average annual increase of 10.2%/year

and so on.

This is from the below link, which also has similar for bonds, Treasury bills, and gold. These don't come close to matching the increase in equities.
http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/histretSP.html